Record sales in Toronto's condo market

There were 9,866 new condo apartment sales in the Greater Toronto Area in the first quarter of 2017, according to Altus Data Solutions. This marks the highest first-quarter total in 15 years. A total of 7,769 units were launched for sale in the GTA market between January and March, as demand continues to far exceed supply. As a result, unsold developer inventory has declined by 49 per cent annually from 18,119 units a year ago, to under 10,000 units today.

There will be much debate in the coming months about the Ontario government’s new Fair Housing Plan, and its ultimate impact on the new condominium market. Ontario Minister of Finance Charles Sousa expressed concern about “property scalpers” buying units with the intent of assigning them before the completion of a building. Sousa wants to ensure they are paying the land transfer tax and the capital gains tax. Assignments haven’t been that prevalent over the past five years as transaction costs remain high, and the growth in rental rates has enticed investors to rent out their units.

Speaking of rental rates, another-market cooling measure implemented as part of the Fair Housing Plan is expanded rent control. Landlords have to abide by the Ontario Rent Increase Guideline, the maximum a landlord can increase most tenants’ rent during a year without the approval of the Landlord and Tenant Board. In 2017, that rate is just 1.5 per cent, and the province has set the maximum at 2.5 per cent moving forward. It is conceivable that many pre-construction condominium investors will not be pleased with this announcement, as it could erode their potential rental returns. As a result, they may choose to stop investing in rental real estate.

Fortress didn’t see an immediate slowdown, as we launched a new condominium development with our partner Lamb Development Corp., called Wellington House, on the weekend following the Fair Housing Plan announcement. There was no slowdown in activity, as a frenzy of buyers lined up outside the sales office in anticipation of another high-design project by Toronto’s condo king and “starchitect” Peter Clewes.

It is quite possible that renters will now feel much more comfortable renting a unit, knowing that they won’t be saddled with an obscene annual jump in their lease rate. Rent control may actually increase the supply of tenants, boosting the initial rental rate a landlord can achieve, further giving incentive for an investor to buy a new condominium.

Time will tell which of these two competing factors ultimately prevails. In the meantime, unsold supply remains at a multi-year low and it will take months, if not years, before supply returns to a balanced state in the GTA new condo market, despite the cooling measures announced by the government.